Patent portfolio diversity and firm profitability: A question of specialization or diversification?

The relationship between patent portfolio diversity and firm profitability is conceptually opaque and empirically equivocal. We contribute to the literature with a systematic analysis of this relationship by carrying out an empirical investigation based on a sample of 391 international firms. We generate data for patent portfolio diversity at the level of sections, classes, and sub-classes of the International Patent Classification. As moderators of this relationship, we test non-self forward citations (revealing a stream of knowledge between the firm and the outside) and non-self backward citations (assessing the firm's absorptive capacity). Findings highlight how the relationship between patent portfolio diversity and profitability is non-linear and differentially moderated by both the level of non-self forward and backward citations. Accordingly, implications for theory development and managerial decision making are discussed.